There has to be a review of professional indemnity (PI) cover within the financial advice industry, as some firms are facing huge bills for less cover, simply for carrying out DB transfers.
To recap, in the past few years the government brought in pension freedoms to try to address the growing pension time bomb.
They brought into law the ability for an individual to transfer their defined benefit (DB) pension to a more flexible contract. They then made it ‘compulsory’ for the individual to contact an independent financial adviser (IFA) in order to carry out that transfer.
The moment they made it compulsory without first setting out some boundaries, they left the gate open for those firms with no morals to take advantage of vulnerable clients, but tied the hands of those that were more reputable.
Where was the FCA in all this? Only now has it started the process of producing some sort of guidelines, or a simple check list to bring some cohesion to the process.
The government either wants pension freedoms to work or it does not. If they want it to work then either the government or the FCA has to set some simple guidelines.
This could be as basic as the maximum charge payable for a transfer, not on a percentage basis but an actual charge.
Honest firms that help promote the government’s own forward-thinking policy of pension freedoms are now being penalised.
Dishonest firms see it as fair game because once again they are able to make a quick buck, go under and allow the Financial Services Compensation Scheme (FSCS) to pay out, the FSCS that is funded by IFAs trying to do things honestly.
Who is expected to pick up those extra costs?
The FCA says the client has to be ‘treated fairly’ but the IFA has no choice but to pass that extra cost on to the client.
When is someone going to recognise the number of advisers is falling because the costs are going through the roof – yet the need for advice is greater than ever?
The only clients who are going to be able to afford advice will be the wealthy, even though the need for advice is required across the spectrum.
If I were a conspiracy theorist I would suggest someone would like banks to regain the monopoly on advice.
These are the same banks that sold payment protection insurance by the bucket load, but in the minds of the authorities, advise for free; to my mind, nothing a bank does is for free.
The IFA community has to play its part; it has to call out those that treat clients as cash cows, but the authorities and PI providers have to recognise the vast majority do things correctly.
The government could play its part as well. It should bring in legislation to prevent companies ripping off clients, going bust one day, starting up the next and sticking two fingers up to those that do the right thing.
They could introduce a recognised disclaimer that clients have to sign, stating they fully understand the consequences of their actions.
The adviser can no longer accept the risk of advising on today’s rules to then be judged on rules yet to be introduced.
The honest advisers out there also need to be ‘treated fairly’.
Adrian Gill is a financial adviser
